The Investigation of Effective Factors on Access Stock Return in Tehran Stock Exchange (TSE)

In this research, regarding the importance of the relation between risk and return on access market return, company size and BV/MV ratio on access stock return are investigated. This investigation was conducted in a time series pattern of 1999 to 2005 in Tehran stock market. Cross section analysis is used in this research for the reliable test of these factors against the market change. Provided that the cross section coefficients are significant, the related variable will be reliable on the market change conditions. And the percentage of that coefficient will be equal to the risk premium of that factor. Finally the results of time series analysis show that all of the applied variables in this research were significant and effective and in the cross section analysis none of the variables significant, it means that none of the applied variables reliable in the market change conditions. The empirical finance literature has documented tantalizing associations between future stock returns and firm characteristics. We use the neoclassical q-theory of investment to provide the micro foundations for time- varying expected returns in the cross section, thus establishing a structural framework for understanding anomalies and for capturing them empirically. Under constant returns to scale stock returns equal investment returns, which are tied to firm characteristics through the optimality conditions for investment. We use these conditions to show how expected returns vary in the cross section with firm characteristics, corporate policies, and events. We show that q-theory can generate the following asset pricing anomalies. The first is the investment anomaly: The investment-to-assets ratio is negatively correlated with average returns. The second is the value anomaly: Value stocks (stocks with high book-to-market ratios) earn higher average returns than growth stocks (stocks with low book-to-market ratios), especially for small firms. The third is the post-earnings-announcement drift anomaly: Firms with positive earnings surprises earn higher average returns than firms with negative earnings surprises, especially for small firms. The intuition behind the way in which the q-theory predicts these anomalies is most transparent in a simple two-period example. The investment return from time t to t + 1 equals the ratio of the marginal profit of investment at t + 1 divided by the marginal cost of investment at t. This definition implies two economic forces that drive asset pricing anomalies. First, optimal investment produces a negative relation between investment and expected returns. The ratio of investment to assets increases with the net present value of capital, and the net present value decreases with the cost of capital or the expected return. The investment anomaly occurs because a low cost of capital implies a high net present value, which in turn implies high investment. There are many incentives for investment in capital market. Some of them invest for gain prestige, some for take control of the company and some for other motives. The main motivations for most investors are to gain efficiencies and curtailing benefits on capital returns. So one of the important criteria for investment decisions are the return on investment. Investments in financial assets have always found that kind of risk and uncertainty that threatens to return and principal investment. The value anomaly results from the same driving force because investment is an increasing function of marginal q, which is closely linked to the market- to-book ratio. The negative investment-return relation then implies a negative relation between market-to-book and expected returns (Liu et al., 2007). As the saying goes, the stock market is the barometer of business. Stocks reflect how the economy performs at any given time. Economists have divided the economy into three categories based on their economic behaviors: macroeconomics and microeconomics. Each own risk factors which affect stock prices and account for the variations in stock returns. As Li (2007) argued, stock prices are determined by these three economic environments. This study focuses on the macroeconomic environment. A stock market is a good tool for assessing the macroeconomic environment, which affects the performance of firms. To some degree, investment performance and opportunities are determined by the conditions of the macroeconomic environment. The rest of the paper proceeds in the following steps: Section two is literature review. Section three gives methodology. Section four presents results and Finally section five is paper's conclusion.